This is more in the wheel-house of economics than programming, but after a few different titles, I thought it best not to skirt around the root of my question OR create a oddly phrased USD based question; when I'm actually asking about Ether. Just briefly, Ethereum is a blockchain network and Ether is the main crypto-currency on it that is used to pay the miners / validators, yada, yada.
Other tokens exist and it's possible to program an arbitrary contract like a financial derivative, but it doesn't have (and cannot have) a tokenized version of a US dollar without someone being able to cheat you if you ask for delivery or lie to you if you just ask for a price-feed. Basically, just like the real world, there's counter-party risk when you have to ask a human to help you or give you information. So the hard part here is getting an accurate picture of the current purchasing power of 1 Ether without simply asking a human to provide you with the current USD:ETH price feed.
I'm a programmer, not an economist, but crypto-currencies are just ridiculously volatile. I would like to create asset market on Ethereum to help stabilize the value of Ether over the long term. I was thinking that perhaps I could create a contract in the form of "Pay X Ether now to have the option to buy Y Ether in 90 days". Except when I start to walk myself through an example, it doesn't make sense. I think I've structured it wrong and it seems like one side is guaranteed to lose and the other guaranteed to win regardless of whether the objective purchasing power of Ether goes up or down.
Phrased differently, using USD as a more familiar asset, I want to glean information about the current value (purchasing power) of \$1 USD today by creating a derivative of \$1 USD deliverable at some point in the future... without access to anyone's opinion of what the price is other than the current and historical order-book / trades between people of the real asset and the derivative.
The other caveat here is to avoid delivery 'now' for a 'promise' in the future, as that is wide open to theft and 99.99% of participants on Ethereum are anonymous, so no person can be trusted (only the code is trusted to execute as-written).
If I'm way off base with how I've thought the Asset:Derivative pair should work, please provide further guidance or alternatives. Especially real-world examples I can research.
Later, the intent is that a Market Maker contract will trade both sides of the asset (Ether Vs Ether's long term sentiment) to guarantee high-liquidity and easy price-discovery. The MM assumes only that the further the price is away from the long term mean, the more it should offer to trade at the current spot price, to buy back later when sentiment change back to the other side again. This, I believe will reduce volatility (as measured in purchasing power) given enough liquidity (some double digit % of total market cap locked in it I think would be quite influential).
The MM would:
- Skim profits from traders during high volatility.
- Neither win nor lose during stable periods as volume it offered would be negligible compared to the total assets it held.
- Be susceptible to losses as long term trend could cause the MM to be over committed to one side of the market than the other, expecting a return to mean that never comes.
- Over-sell Ether in a long term bull market and lose out on gains.
- Over-buy Ether in a long term bear market and lose objective purchasing power.